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Monthly Budget Review

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The Monthly Budget Review

August 2007

The Congressional Budget Office reports that the federal budget deficit for the first ten months of FY 2007 was about $158 billion, down from $238 billion in the same time frame last year. Previous predictions calculated a deficit between $150 and $200 billion at the fiscal year end. CBO predicts the final deficit will be on the lower end of that scale.

WHAT HAPPENED?

The dwindling deficit reflects revenues this year that are 7% higher than last against a 3% growth in outlays. The Treasury reported a $27 billion surplus in June due, CBO concludes, to lower than expected outlays for the Departments of Agriculture and State.

July, on the other hand, showed a $37 billion deficit. July receipts were $10.5 billion higher than last July, but outlays were $15 billion greater than last July. This July’s increase came from a 14% ($6 billion) increase in Defense spending and a 3% ($4 billion) increase in Medicare. Net interest on the public debt and Social Security spending were up 14% ($5 billion). Social Security increased by 6% or $3 billion and the debt interest increased 8% or $2 billion.

WHERE THE MONEY CAME FROM

Receipts through July

Receipts in July were $146 billion higher than the same time last year due largely to an 11% increase in individual income taxes paid representing 70% of the increase. Corporate tax revenue increased by 10% and Social insurance taxes grew by almost $4%.

The ‘Other’ category declined in revenue because a court ruling eliminated some telephone excise taxes and payments made from the Treasury to refund some of those taxes, the CBO explained.

Income tax gains are said to be the result of higher withholding due to higher wages and salaries reportedly around 6.4%. Non-withheld income and payroll taxes increased as a mix of quarterly estimated taxes and payments of tax liabilities for 2006.

Corporate taxes showed a slower growth than in the 2004 to 2006 period reflecting a slower year-to-year profit growth. CBO notes that corporate profits grew by 30% from 2004 to 2005 and less than 15% from 2005 to 2006.

WHERE THE MONEY WENT

Medicare and Medicaid represent the largest growth in outlays. The prescription drug program that removed those outlays from Medicaid and placed them with Medicare still continues to influence those numbers.

Defense grew at about the same pace as the last two years with Iraq and Afghanistan spending averaging between $9 and $10 billion per month this fiscal year so far.

Social Security spending remains steady at about a 6% growth. Net interest on the public debt grew by 7.6%, an amount less than the 24% growth last year.

Increases in Defense and the entitlement programs were offset by less spending in the ‘Other’ category that dropped over 9%. The decline in ‘Other’ spending is attributed to less spending for flood insurance, disaster relief and agriculture programs and higher receipts from Medicare premiums and revenues from auctions of licenses to use the electromagnetic spectrum (airwaves), CBO said.

This Report is revised from the original CBO report compiled by CBO’s Mark Booth, Chad Chirico, Barbara Edwards, and Kathy Gramp.

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